If you won’t be able to self-finance, use a business loan from a local bank or credit union. Stay away from using credit cards as the interest rates are extremely high and if you miss payments, it will damage your credit. Business loans are typically one-time loans and have low interest rates, but you will need to have a good credit score and get your personal finances in order so that you can get the best rates on your loan.
Since you will be starting without a prior business credit history, your bank will use your personal credit history to set the terms of your business loan. If you are out of debt with a good credit score, you’ll be fine; however, if you have credit card debt, you’ll want to read on for three tips on how to clean up your credit.
STARTING YOUR NEW BUSINESS: THREE STEPS TO CLEANING UP YOUR CREDIT SCORE
Having a squeaky clean score will help you negotiate excellent terms for your business loan. Here are three steps you can follow.
Step 1: Pay Off All of Your Credit Card Debt
Your first task is to figure out why you have excess credit card debt? Most people do, so you aren’t alone, but take time to realize your spending habits and find your weaknesses. Next you need to make a plan for eliminating your debts. If may seem impossible to become debt free, but tens of thousands of people have already done it, so know that you can too. Also know that paying it off with intensity, over a short period of time, will cost you less in the long term.
Make a list of all of your debts, arranging them with the highest interest rate first. Make double payments on the debt with the highest interest rate and minimum payments on all the others. If you can scrape up extra money, throw that at the top debt to eliminate it as quickly as possible. You will save yourself hundreds, if not thousands, of dollars by attacking the highest interest rate and it will take just half the time. After you have paid off the highest rate card, apply that money towards the next credit card with the highest interest rate. Keep doing this until you have all your cards paid off. Once you get going, you’ll find and experience the freedom of being credit card debt free.
If you do have a difficult time not using your credit cards wisely, take them out of your wallet and hide them in your home or freeze them in a cup of water so they aren’t easily accessible.
Step 2: Check Your Credit Report
Head to one of the three credit reporting bureaus and sign up for a free copy of your credit report. Check it for mistakes because there could be some and they will damage your credit score and interest rates.
If there are mistakes, you can dispute them via the credit reporting bureau. The creditor has 30 days to respond, and if they don’t, the error will be taken off your report. If you have old debt, the creditors may not respond. Check my credit score instantly. The only thing you have to lose is the negative impact on your credit score.
Step 3: Pay On Time
Your credit rating is not only based on the amount of debt, but also your ability to pay your bills early or on time. This includes car payments, utilities, rent and mortgages. Paying on time will help your credit score. If you often forget, set up reminders on your phone or keep all bills in a place where you will see them daily and always be reminded of them.
You can set up automatic bill pay with most utility companies as well as credit cards and even rent. Whenever possible set this up to avoid late fees and the hassle of mailing a check.
It’s very important to have your personal financial life in order before establishing your business: no debt, responsible financial habits and healthy credit. With good credit you will start in a better position and are more likely to be successful. Once you finish these three steps, you’ll be in great financial shape. Good luck in your new business endeavors!